French Government Must Decide Between Tax Cuts And EU Commitments

by Ulrika Lomas, Tax-News.com, Brussels

08 May 2002

Following President Jaques Chirac's election victory on Sunday, questions have been raised as to how the centre-right politician can honour his campaign promises, while at the same time working towards 'the medium-term budgetary objective of close to balance or in surplus by 2004 at the latest' agreed to by Chirac and his former Prime Minister, Lionel Jospin, at an EU summit earlier this year.

There have been suggestions that the socialist majority in the National Assembly could be overturned in the National Assembly following the legislative elections in June, which would remove some of the curbs on the conservative president.

In his pre-election manifesto, President Chirac promised to reduce income taxes by around one-third over five years, and lower corporate taxes and social charges for employers. However, there has been increased speculation as to how this can be achieved while increasing government spending on crime, and honouring EU budgetary policy commitments.

Many experts feel that, once the legislative elections are over, the French government is likely to propose a postponement of the balanced budget until 2007, although opinion is divided as to whether this will be accepted by the 15 nation bloc.

In a Reuters news report released on Monday, a European Commission source 'close to EU Monetary Affairs Commissioner Pedro Solbes', is quoted as stating that: 'The Commission refuses to start a debate about postponing the deadline.'

However, the same article cites another source as speculating that the French government could probably count on the support of Germany and Italy if it decides to move for a delayed deadline.

'When three countries that make up 75% of the GDP of the euro zone break ranks, that can do a lot of harm,' the unnamed Commission official mused.

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